Cathal Anthony Lyons v Fox Williams LLP  EWHC 2427 (QB)
The High Court has today (25 October 2016) handed down its judgment in a significant and complex solicitors' negligence case in which the £16m+ claims at trial have been dismissed. The case turned on the scope of the retainer and causation issues. DAC Beachcroft (Phil Murrin and Parminder Badhan) acted for the successful defendant and its professional indemnity insurers. Please click here to access the judgment.
Mr Lyons (the claimant) suffered significant injuries in 2006 whilst riding his motorcycle in Moscow. At the time he was Chief Financial Officer and Managing Partner of Operations of the Moscow arm of Ernst & Young (EY), with earnings in the region of US$700,000 per annum.
Mr Lyons had the benefit of Long Term Disability (LTD) and Accidental Death and Dismemberment (AD&D) policies taken out by his employer. Mr Lyons sought to make claims under the policies assisted by others, and in 2007 he retained the City law firm Fox Williams (FW) to advise him.
Mr Lyons' case was that FW acted negligently as a result of which he found himself to be very substantially out of pocket in his dealings both with the insurers and EY. Mr Lyons advanced 3 claims:
A claim for costs incurred in relation to a recovery from the AD&D insurers and loss of use of the proceeds, which was settled before trial, without admission of liability.
It was alleged that FW owed a duty to advise Mr Lyons with relation to the LTD policies, and that the lack of advice deprived Mr Lyons of a real and substantial chance of recovering payments totalling US$6,227,988 under the policies.
The third claim followed an acrimonious dispute between Mr Lyons and EY arising from the termination of an 'exit' agreement reached in 2009 between EY and Mr Lyons. The terms of the 2009 agreement provided for EY to maintain lifetime medical insurance cover for Mr Lyons and his family. EY's termination of the 2009 agreement (and insurance cover) led Mr Lyons to issue a claim in England against EY for breach of contract. This claim was settled in 2012, and after EY had contested (but later conceded) the jurisdiction of the English courts.
It was Mr Lyons' case that FW was negligent as a result of the non-inclusion of an English law and jurisdiction clause in the 2009 agreement, and he claimed damages for:
(i) £11,681,000, being the alleged difference between the sum he accepted in settlement of his claim against EY, and the value of the lifetime insurance benefits he alleged he would have received if no such dispute had arisen.
(ii) Approximately £100,000, being the irrecoverable costs in pursuing EY. This claim was settled before trial, without admission of liability, for £75,000.
Accordingly FW was facing claims totalling £16m+ at trial.
The claims at trial were both dismissed by Mr Justice Turner.
The Judge found that at all material times there had been no express or implied retainer under which FW owed a duty to advise Mr Lyons on issues relating to LTD cover. FW's engagement letter clearly identified the scope of the retainer to include advice on the AD&D claim and related misrepresentation issues and, despite the claimant's attempts to invite the Judge to infer that LTD was also included, the Judge was in no doubt that if it had been the intention of the parties to include LTD issues then the engagement letter would have been unambiguous on the point.
The Judge found that subsequent references to LTD in exchanges between Mr Lyons and those acting on his behalf including FW, were by way of setting the background context and, latterly, to define an element in Mr Lyons' broad negotiating objectives with EY. FW was not expected to analyse the scope and contents of the LTD policies.
The Judge rejected the evidence of Mr Lyons (and also that of his former girlfriend) that FW had been asked to advise on the LTD policies. No such advice appeared in the contemporaneous documentation and, more importantly, there was no clear and unambiguous reference in the emails passing between Mr Lyons and FW to any such advice having been requested or given. The Judge was satisfied that if Mr Lyons had asked FW to advise on the scope and operation of the LTD policy then at least some more specific reference to this would have appeared from the documentation.
The Judge was particularly scathing of Mr Lyons' case on this point. He said, for example:
“[The] claimant’s eager enthusiasm to read into this and other emails references to LTD issues where, on any realistic interpretation, there are none, betrays a serious lack of objectivity”.
“[H]is suggestion that there would have been a discussion of the LTD Policies during [a] conversation amounted to no more than an opportunistic attempt to make the facts fit his case”.
“Defendants in professional negligence claims do not necessarily enjoy a monopoly of happy hindsight”.
“[T]his is another example of the claimant’s tendentious efforts to support his case”.
The Judge said that the oral evidence at trial of the FW witness “was given thoughtfully and with a credible fluency which stood in stark contrast to the effortful procrastinations of the claimant”.
The Judge also rejected Mr Lyons' alternative case, that FW came under a duty to warn him to have regard to the scope and validity of the LTD policies. Whilst circumstances may arise in which a solicitor comes under a duty to warn his client of particular risks which may not necessarily fall squarely within his retainer, the Judge found that no duty to warn arose on the facts of the case and FW was not in breach of any duty to warn Mr Lyons. The Judge said that FW did not become aware of a risk or potential risk to the claimant arising out of the LTD policies and it was not objectively unreasonable for FW to omit to flag up any such risk. The Judge took into account the following factors:
Mr Lyons was an astute, focussed and commercially minded businessman.
Mr Lyons was clearly using FW more as a targeted resource than as a general legal adviser. There was no legitimate expectation at the material times that FW would undertake any sort of analysis of the LTD documentation falling outside the scope of the original express retainer.
Mr Lyons' evidence in the EY proceedings was that EY “had been actively leading the claim on the LTD insurance”.
The LTD policies were legally distinct from the AD&D policies. Perusal of and advice upon the latter did not require any knowledge of the scope or terms of the former; mere knowledge of the existence of the LTD policies against the limited background context of which FW was aware would not have put them on the alert that there was a problem or risk which ought to have been pointed out.
The 2009 agreement claim
The Judge found that it would have made no difference if FW had advised Mr Lyons about the potential disadvantages of omitting an English law and jurisdiction clause from the 2009 agreement. Accordingly the claim failed on causation.
Whilst the failure to point out and recommend to Mr Lyons that the terms of the agreement negotiated with EY should include an English law and jurisdiction clause, was held negligent, Mr Lyons knew that the 2009 agreement did not contain an English law and jurisdiction clause and chose to proceed in any event. The Judge found that even if Mr Lyons (contrary to his primary findings on this issue) would have acted differently had FW advised him to seek to negotiate an English law and jurisdiction clause, there was no real or substantial chance that such a clause would have been incorporated into the agreement. In this regard the Judge accepted the evidence given by EY in Mr Lyons' claim against EY that they would not have agreed to the inclusion of an English law and jurisdiction clause.
For completeness the Judge went on to make the hypothetical finding that Mr Lyons had not proved that the absence of an English law and jurisdiction clause made any material difference to the outcome of his claim against EY.
As a result of the Judge's findings on liability and causation, the level (if any) of contributory negligence, and the operation of FW's limitation of liability terms, did not fall to be resolved. The Judge did note in passing, however, that it would have been a considerable challenge for FW to discharge the burden to prove reasonableness imposed by the provisions of the Unfair Contract Terms Act 1977 in the absence of evidence relating to how far it was open to it to cover itself by insurance.
Whilst the engagement letter is rightly regarded as core in establishing the nature of a solicitor's retainer, claimants will often try to circumvent restrictions in an engagement letter by presenting a picture of retainer drift, or undischarged duties to warn. Professional indemnity insurers and solicitors will no doubt welcome another case where such attempts have failed. This demonstrates that a client will struggle to prove that the scope of the retainer extends beyond the duties clearly identified in the engagement letter in the absence of clear and unambiguous supporting references in the contemporaneous documentation.
A very relevant factor in the determination of the scope of a solicitor's retainer is the character and experience of the client. In this case the claimant was an intelligent, astute and articulate businessman; and the Judge said that his former role at EY Moscow (as Chief Financial Officer and Managing Partner of Operations) was one that “called for robust leadership qualities combined with a strong commercial instinct; Mr Lyons was used to dealing with lawyers and with the financial aspects of insurance”. Professional indemnity insurers and solicitors will note the credibility issues faced by sophisticated clients, used to dealing with lawyers, in contending that they should have been advised on matters where evidence suggests no advice was sought.
The causation issues in relation to the 2009 agreement claim also demonstrate that whilst loss of chance is often seen as dangerous territory for solicitors and their professional indemnity insurers, even where breach of duty is found, the hurdle of establishing a real and substantial chance can be insurmountable where the facts do not support that contention.